Michael Tanner: It pays to be on welfare

A volunteer stocks shelves at the West Side Campaign Against Hunger food pantry on July 24, in New York City. GETTY IMAGES

Reform needed

Welfare reforms of 1996 were dramatic, but the federal government still runs an array of welfare programs that are expensive and damaging, according to the Cato Institute. "The federal government should phase-out its role in TANF and related welfare programs and leave low-income assistance programs to state governments, or better yet, the private sector," a report by Cato senior fellow Michael Tanner and budget analyst Tad DeHaven recommends.

Contrary to stereotypes, there is no evidence that people on welfare are lazy. Indeed, surveys of welfare recipients consistently show their desire for a job.

However, there is also evidence that many are reluctant to accept available employment opportunities.

In fact, despite the work requirements included in the 1996 welfare reform, only 21 percent of adult welfare recipients in California are working in unsubsidized jobs, while less than 43 percent are involved in the broader definition of work participation, which includes activities like job search and training.

Perhaps that is because, while poor people are not lazy, they are not stupid either. If you pay people more not to work than they can earn by working, many will choose not to work. And California pays people on welfare a great deal not to work.

A new study released by the Cato Institute looks at the state-by-state value of welfare. Nationwide, our study found that the value of benefits for a typical recipient family ranged from a high of $49,175 in Hawaii to a low of $16,984 in Mississippi.

In California, a mother with two children participating in seven major welfare programs (Temporary Assistance for Needy Families, Medicaid, food stamps, WIC, housing assistance, utility assistance and free commodities) could receive a package of benefits worth $35,287, the 11th highest in the nation. Only Hawaii, Massachusetts, Connecticut, New Jersey, Rhode Island, New York, Vermont, New Hampshire, Maryland and the District of Columbia provided more generous benefits.

It's important to remember that welfare benefits are not taxed, while wages are. In fact, in some ways, the highest marginal tax rates anywhere are not for millionaires, but for someone leaving welfare and taking a job. The earned income tax credit and child tax credit have gone some way to address this wedge between welfare and work, but significant deterrents to work still remain. Even after accounting for the effects of these tax credits, a mother with two children in California would still have to earn $17.87 per hour for her family to be better off than they would be on welfare.

To put that in perspective, that is more than the average entry level salary for a teacher or secretary. In fact, it is more than 96 percent of California's median salary.

Don't forget that there are additional costs associated with going to work, such as child care, transportation and clothing. And, of course, even if the final income level remains unchanged, an individual moving from welfare to work will perceive some form of loss – a reduction in leisure as opposed to work.

By not working, welfare recipients are simply responding rationally to the incentive systems our public policy makers have established for them.

Of course, not every welfare recipient meets the study's profile, and many who do don't receive all the benefits listed. Still, what is undeniable is that for many recipients – particularly “long-term” dependents – welfare pays substantially more than an entry level job.

This makes sense for recipients in the short term, but it may hurt them over the long term. One of the most important steps toward avoiding or getting out of poverty is a job. Only 2.6 percent of full-time workers are poor, compared with 23.9 percent of adults who do not work. And, while many anti-poverty activists decry low-wage jobs, even starting at a minimum wage job can be a springboard out of poverty.

There should clearly be a public policy preference for work over welfare. And, while it would be nice to raise the wages of entry level service workers, government has no ability to do so. Study after study show that mandated wage increases result in increased unemployment for the lowest skilled workers.

Therefore, if Congress and state legislatures are serious about reducing welfare dependence and rewarding work, they should consider strengthening welfare work requirements, removing exemptions and narrowing the definition of work. In particular, Californian legislators should consider ways to shrink the gap between the value of welfare and work by reducing current benefit levels and tightening eligibility requirements.

Michael Tanner is a senior fellow at the Cato Institute and author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.

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